Fund pushes overseas investment

The government will launch a new fund product exempt from income taxes on earnings from foreign stock purchases in an effort to encourage domestic investors to invest abroad.

The Ministry of Strategy and Finance announced a package of measures Monday to stimulate investment outside Korea, aimed at easing the strengthening of the Korean won against the U.S. dollar in the midst of a years-long consecutive current account surplus.

The new tax-free fund product, which has not been named yet, will invest more than 60 percent of its assets in foreign stocks for no more than a maximum of 10 years. Individuals can invest up to a total of 30 million won ($26,716) within the next two years.

Still, the Finance Ministry said in a report that the government would not provide tax exemptions for the current fund products that support foreign stock purchases.

Tax exemptions will be also applied to profits due to foreign exchange fluctuations, the Finance Ministry said.

Local insurance companies will be encouraged to invest in foreign bonds, particularly those issued by emerging countries, the ministry said.

So far, domestic insurance companies can invest in foreign bonds issued by companies or countries rated by international credit agencies.

The ceiling for investing in foreign bonds of emerging countries will be 30 percent of total assets, the ministry said.

Regulations governing Koreans’ purchases of overseas real estate will also be eased.

Under the Foreign Exchange Transactions Act, all kinds of mergers and acquisitions of foreign firms by Korean companies must be reported to the government in advance.

But under the new rule, prior notice will not be required as all kinds of M&A investment will be allowed if the investors report their actions to the government after the fact.

Other direct investments, worth $5 million or less, by Koreans in foreign countries will also be approved through after-notice to the government.

Banks and other financial institutions in Korea will offer up to a total of $5 billion for loans to companies planning to acquire or merge with foreign firms.

The measures for stimulating overseas investment came after Korea recorded its 38th straight monthly surplus in June.

The surplus brought lots of U.S. dollars into the Korean currency market, resulting in strengthening the Korean won against the U.S. dollar and eroding competitiveness of exporters.

BY KIM HEE-JIN [kim.heejin@joongang.co.kr]